We recently published a list of Cathie Wood’s 11 Favorite AI Stocks. Since Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) ranks 6th on the list, it deserves a deeper look.
Cathie Wood’s flagship fund is continuing to face steep losses amid a broader pullback in technology stocks. Wood’s flagship fund ARK Innovation ETF (NYSEARCA:ARKK) is down about 18% so far this year and has lost about 75% of its value since hitting its peak in 2021. However, the latest data shows that the innovation-focused investor bought the dip on tech stocks after the latest selloff that shook financial markets globally.
Investors have pulled about $2.2 billion from ARK funds in 2024. The fund is on track to post its worst year of investor exodus since 2014. But Cathie Wood is doubling down on her innovation bets and is hopeful the upcoming rate cuts will be positive for the stock market.
Cathie Wood Says “Something Is Changing” and the Fed is Now on “High Alert”
Talking about the market situation, Cathie Wood said in a latest video on her YouTube channel that the recent selloff shows the market is going through a “cathartic” phase and “something is changing.”
“I do believe that the Fed now is on high alert because the stock market seemed to be encouraging the Fed to hold tight, higher for longer, make sure that the inflation was out of the system.”
Cathie Wood said that corporations are now in a weaker position amid high rates and they will initiate layoffs to cut costs and increase productivity. This weak employment situation could encourage the Federal Reserve to start cutting rates, according to Wood.
“Interest rates coming down should be very positive for the equity markets, but they will not arrest a recession very quickly. In fact, if consumers and businesses know that interest rates and maybe prices will be coming down, what will they do? They will wait.”
Cathie Wood’s ARK has posted its latest stock holdings data as of the end of the June quarter. For this article we scanned the fund’s latest portfolio and picked 11 AI stocks it has positions in. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)
Cathie Wood’s Latest Stake Value: $44,569,924
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is one of the best AI semiconductor stocks big tech funds are piling into, and for the right reasons. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the biggest foundry that makes chips for fabless companies, enjoying an over 50% market share. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is behind some of the world’s most advanced chips, including 2nm and 3nm nodes. It supplies chips to major players like Apple (AAPL), Qualcomm (QCOM), and Nvidia (NVDA).
Despite these growth catalysts, analysts believe Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) valuation is depressed amid the Taiwan factor — any conflict between China and Taiwan would hamper Taiwan Semiconductor Mfg. Co. Ltd.’s (NYSE:TSM) business due to its huge reliance on international supply chains. The stock is trading at a forward P/E of 27, much lower than peers like ASML, NVDA and AMD. But some believe these concerns are overblown and there are no short-term risks to Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) from this perspective. Bank of America’s Brad Lin recently increased his earnings estimate and price target for the stock, saying TSMC is the “key beneficiary and enabler of AI prosperity.” Lin set a $180 price target on TSMC. Lin thinks Apple’s latest plans revealed at the WWDC event would bode well for Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) since TSMC makes 25% of its revenue from the Cupertino giant.
Wedgewood Partners stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter:
“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was a top contributor to performance during the quarter. The Company’s revenue growth continued to accelerate due to the rollout of its leading-edge N3 manufacturing node along with strong demand for chips used in artificial intelligence applications. Unlike in traditional CPUs, the Company has blue-chip customers, monopoly market share for manufacturing AI chips, such as GPUs. The Company’s aggressive investment in capital equipment several years ago should continue to pay off as fabless chip designers proliferate and require a manufacturing partner to shoulder capex risk. The Company’s continued aggressive investment and deployment in semiconductor manufacturing equipment is not an easily replicable competitive advantage.”
Overall, Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) ranks 6th on Insider Monkey’s list titled Cathie Wood’s 11 Favorite AI Stocks. While we acknowledge the potential of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
